Suppose that Congress allocates $5 billion to an "energy-efficient appliance rebate" program. It also raises taxes by $5 billion to keep the deficit from growing. If the marginal propensity to consume is 0.8, what is the effect on equilibrium GD
A) GDP does not change. B) GDP increases by $5 billion.
C) GDP increases by $25 billion. D) GDP increases by $4 billion.
B
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Industry Y is a perfectly competitive industry. Assume that as a result of changes in other markets there is a twenty percent increase in the price of variable inputs used by firms in industry Y
After all adjustments have taken place, we would expect the equilibrium price in industry Y to: A) decrease and the number of firms to increase. B) decrease and the number of firms to decrease. C) increase and the number of firms to increase. D) increase and the number of firms to decrease.
What is the appropriate monetary policy response to a situation with deficient financial liquidity, when there is a liquidity trap?
A) an open market sale of government bonds B) a decrease in the interest rate on reserves C) an open market purchase of government bonds D) an increase in the interest rate on reserves